When managing your taxes, understanding various forms and their purposes can feel overwhelming. One of the key forms you need to be familiar with, especially if you’re self-employed, own a small business, or have significant income outside of a traditional paycheck, is the IRS Form 1040-ES. Knowing about this form in detail can help make estimated tax payments throughout the year.
In this guide, we’ll explain everything you need to know about IRS Form 1040-ES. We’ll cover what it is, who needs to file it, how to calculate your estimated taxes, and more. Whether you’re new to estimated tax payments or need a refresher, this guide will provide clear and concise information to help you stay on top of your tax obligations and avoid any unexpected bills come tax season.
What is IRS Form 1040-ES?
IRS Form 1040-ES, which is also known as the Estimated Tax for Individuals, is a form used to pay estimated taxes on income that is not subject to withholding. This includes income from self-employment, alimony, rent, interest, dividends, gains from the sale of assets, prizes, and awards.
Estimated taxes are periodic advance payments made to the IRS based on the income you expect to earn in a given year. This system helps spread your tax liability over the year and prevent a large lump sum payment when your annual tax return is due.
The form includes a worksheet to help you calculate your estimated taxes. It also provides payment vouchers to use when sending your payments to the IRS. Payments are typically due in four instalments throughout the year: April, June, September, and January of the following year.
Understanding and correctly using Form 1040-ES can ensure you stay compliant with tax laws and avoid potential penalties for underpayment.
Also Read: IRS Form W-9 – A Complete Guide
Who Can Use Form 1040-ES?
Form 1040-ES is meant for individuals who need to pay estimated taxes because their income isn’t subject to withholding. This includes a wide range of taxpayers, such as:
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Self-Employed Individuals
If you run your own business or work as a freelancer, your income typically isn’t subject to withholding. Therefore, you need to make estimated tax payments using Form 1040-ES.
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Small Business Owners
Similar to self-employed individuals, small business owners must pay estimated taxes throughout the year on their earnings.
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Independent Contractors
Those who work on a contract basis and don’t have taxes withheld from their paychecks need to use Form 1040-ES to pay their taxes quarterly.
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Investors
If you earn significant income from dividends, interest, or capital gains, this income usually doesn’t have taxes withheld, requiring you to make estimated payments.
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Recipients of Alimony
For those receiving alimony, this income may require estimated tax payments if it constitutes a significant portion of their earnings.
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Individuals with Other Sources of Income
This includes income from awards, prizes, gambling winnings, and other types of non-wage income.
If you expect to owe taxes worth at least $1,000 after subtracting your withholding and refundable credits, and your withholding/refundable credits are less than the smaller of 90% of the tax to be shown on your current year’s tax return or 100% of the tax shown on your previous year’s return, you should use Form 1040-ES to make estimated tax payments. By doing so, you can avoid penalties for underpayment and stay compliant with IRS regulations.
Recommended Read: A Complete Guide to the Internal Revenue Service (IRS)
What is the Exception to Filing IRS Form 1040-ES?
While many individuals need to use Form 1040-ES to make estimated tax payments, there are some exceptions. You may not need to file Form 1040-ES if you meet the following criteria:
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Withholding Covers Your Tax Liability
If you have sufficient tax withheld from your salary, pension, or other income sources to cover your total tax liability for the year, you may not need to make estimated tax payments. This can be managed by adjusting your withholding on Form W-4 with your employer.
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No Tax Liability in the Previous Year
If you had no tax liability last year, you may not be required to make estimated tax payments this year. To qualify for this exception, you must have been a U.S. citizen or resident for the entire year, and your prior year must have covered a full 12-month period.
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Sufficient Refundable Credits
If you expect to receive enough refundable credits to cover your tax liability, estimated tax payments may not be necessary. Refundable credits can offset your total tax owed.
Understanding these exceptions can help you determine whether you need to file Form 1040-ES or if your current tax situation allows you to avoid estimated payments.
When to File 1040-ES?
Filing Form 1040-ES involves adhering to specific deadlines throughout the year. Here’s a breakdown of when you should file:
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First Quarter Deadline – April 15th
The first estimated tax payment for the current tax year is typically due April 15th. This payment covers income earned from January 1st to March 31st.
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Second Quarter Deadline – June 15th
The second estimated tax payment is due June 15th. This payment covers income earned from April 1st to May 31st.
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Third Quarter Deadline – September 15th
The third estimated tax payment is due on September 15th. This payment covers income earned from June 1st to August 31st.
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Fourth Quarter Deadline – January 15th (of the following year)
The fourth and final estimated tax payment for the current tax year is due on January 15th of the following year. This payment covers income earned from September 1st to December 31st of the current tax year.
**In case the due date falls on a holiday or a weekend, the deadline typically extends to the next business day. Additionally, if you file your tax return for the year by January 31st of the following year and pay the entire balance due with your return, you don’t need to make the payment due on January 15th.
By adhering to these deadlines and making your estimated tax payments on time, you can avoid penalties for underpayment and ensure compliance with IRS regulations. It’s essential to mark these dates on your calendar and plan to meet your tax obligations effectively.
